Stablecoins backed by fiat currencies may meet that standard provided their reserves are liquid and audited monthly.
The Canadian Securities Administrators (CSA), which is comprised of securities regulators from each of Canada’s 10 provinces and 3 territories, has published a lengthy list of new requirements for crypto companies wishing to remain legally compliant, and stablecoin platforms are in the agency’s sights.
Without the CSA’s previous written authorization, crypto asset trading platforms inside the nation will be forbidden from enabling users to acquire or deposit stablecoins or other “Value Referenced Crypto Assets” (VRCAs). Getting permission requires completing the several due diligence criteria of the administrators, including guaranteeing that the stablecoin is backed by fiat currency.
In a notice released on Wednesday, the regulator said, “For greater clarity, we would not anticipate to give authorization for a VRCA that is not completely supported by an acceptable reserve but rather maintains its value via an algorithm.”
Stablecoins are cryptocurrencies meant to retain a somewhat “stable” value, generally compared to a traditionally involatile asset like fiat currency.
Nevertheless, Canadian authorities opted to use the term VRCA since some so-called “stablecoins” in the past were not that stable. In May, TerraUSD (UST), once the third-largest stablecoin by market capitalization, entirely lost its dollar peg due to algorithmic faults that pushed it into an irreversible death spiral.
Traditional fiat-backed stablecoins, such as USDT, USDC, and BUSD, use fiat-denominated reserves to provide consistent convertibility and a stable price for their tokens.
The CSA mandates that trading platforms only permit the buying and selling of such tokens provided their reserves consist of “highly liquid assets” and are stored with a competent custodian. In addition, they must undergo a monthly audit by independent auditors, which must be made public in a timely way.
According to the notification, distributions of these tokens must also comply with Canadian securities law since “fiat-backed crypto assets often fit the definition of a security.”
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